11 Jan, 2023.
Stock market is more in the news today than previously with a lot more people invested in it than ever before.
Consequently, a new breed of entrepreneurs have entered calling themselves Finfluencers.
The philosophy behind an IPO was to raise funds for expansions, thereby further growth. The investors were rewarded with dividends and bonus issues for the trust imposed on the company.
The promoters of the company going for an IPO would themselves be part of road shows and other marketing campaigns explaining their plans for expansion and growth.
However today the purpose for a company launching its IPO has changed dramatically. The IPO game today is merely to get an exit for existing investors at a good price. Note the word Game as it has become one.
We have read in the news about VCs and Hedge funds investing huge sums of money in these companies.
These VCs have completed one part of the transaction which is to have a stake in these companies before the Company goes public. The VCs will profit only if the Company goes public and retail investors start investing.
The retail investors do not have the slightest clue that the VCs are seeking an early exit through them.
The proof of all this is as below. You can see all these heavily promoted IPOs crash almost 40-50% from their listing value.
|Company||Listing Date||Issue Price||Listing Price||Life High||Current Mkt Price||Drop % from low end of Issue Price|
|₹/Share||₹/Share||₹/Share||₹/Share (Dec 1, 2022)|
|Map My India||Dec-21||1000-1003||1581||1918.35||1203.05||20%|
Today a lot of investors are sitting at huge losses ever since they invested in these companies at IPO.
But this is just one part of this scam.
The biggest culprits are influencers who do paid reviews of these IPOs and relentlessly promote them. Followers of these influencers blindly take their advice and follow through by investing their hard-earned money in these IPOs.
Let’s look at an example to understand how this works.
Infibeam IPO 2016
Twitter was trending with #InfibeamShining and was one of the top 5 trending topics in 2016.
On further analysis, it was found that a lot of investors ended up going for the IPO, since it was so heavily promoted by these influencers.
Today it’s been 6 years since this company’s IPO. And it’s share price is at a mere Rs 17 (issue price ₹432/-, and investors are still trapped in it.
You will be shocked to see that how influencers are reached out and rates are shared to promote these IPOs.
That was in 2016. Today this trend has increased manifold and companies with absurd valuations and huge debt on books are promoted aggressively through social media channels.
A series of positive tweets shared repeatedly does the job of creating undue interest.
On the contrary, look at the companies below
These IPOs were less known, not promoted much. There was much less excitement. But it is often these companies who quietly and diligently do their work, that make the biggest bang. Proof of that was their stellar listing.
In conclusion, make extensive research and do not rely entirely on these finfluencers, more specifically use your own judgement.
Usage: Corporate Valuation